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Tim Cook’s Apple In Good Hands

Posted on Friday, Jan 30th 2015

I was one of the few people bullish about Tim Cook’s ability to steer Apple forward. I was right. It appears that there is nothing to stop Apple’s (Nasdaq: AAPL) blockbuster growth. The recent quarterly results reported earlier this week blew out market expectations and showed the strength of the company’s financials. Apple not only reported record earnings, but also ended the quarter with an unimaginable $178 billion in cash.

Apple’s Financials

Apple’s first quarter revenues grew a spectacular 30% over the year to $74.6 billion, surging past the Street’s estimates of $67.5 billion. EPS of $3.06 was also significantly ahead of the market’s forecast of $2.61 per share. They ended the quarter with $18 billion in profits.

According to a Kantar Worldpanel report, in November 2014, Apple’s iOS operating system’s market share in the US grew from 30% in August to 47%. Clearly, the world is devouring Apple’s products. The growth in the quarter’s revenues was attributed to better than expected holiday sales for iPhones. During the quarter, they sold 74.5 million iPhones, compared with the Street’s forecast of 67 million-70 million. iPad sales fell 18% over the year to 21.42 million units. iPad revenues were down 22% to $8.99 billion. Apple’s iPhone 6 and 6 Plus, with their big screens are eating into iPad’s market share, but Apple shouldn’t be worried as they continue to establish dominance in the fast growing phablet market.

Sales of Macs increased 14% over the year to 5.52 million units with revenues of $6.9 billion. Apple’s services revenue improved 9% to $4.8 billion.

For the current quarter, Apple expects revenues of $52 billion-$55 billion, compared with $53.64 billion as expected by the market. Apples projected the quarter’s gross profit margins at 38.5%-39.5%.

Apple Continues to Launch Products

After the successful release of their iPhones for the holiday season, Apple is now preparing to launch several other products and services this year. Last year, they tied up with IBM and will be working with them to release 12 new enterprise apps in the current quarter. These apps will focus on three key industries – healthcare, energy and utilities, and industrial products. As part of the agreement, the two companies are expected to release nearly 100 apps this year. Within the first month of the launch of the agreement, over a dozen enterprise customers have already signed up to use the enterprise solution. Apple reported that IBM was already engaged with over 130 companies to add to this clientele.

In April this year, Apple will begin selling the much anticipated Apple Watch. The Watch will mark Apple’s entry into the still nascent wearables market. The device is much more than a watch as it will allow the wearer to send and receive messages, calls, and mails, watch multi-media content and even use it as a health and fitness tracker. Apple is calling it their “most personal device ever”. The Watch will retail at a base model price of $349. Apple plans to sell three models for the Watch – the regular model, a Sport version for more active customers, and an ultra-premium edition that is expected to be priced in thousands of dollars and will compete with luxury watches.

Apple’s China Growth

While iPhone sales for the quarter were spectacular, Apple also benefited from the strong adoption of their products in the Chinese market. For the recently ended quarter, revenues from the Greater China region increased 70% to $16 billion. Compare that with the 20% growth reported in the European market that brought in $17.2 billion in revenues. Amid other regions, the Americas grew 23% to $30.5 billion. Japan was the slowest market with revenues growing 8% to $5.5 billion while the Rest of Asia saw revenues grow 33% to $5.3 billion.

Apple is benefiting from the tie-up with China Mobile Ltd., the largest global mobile carrier in the market which helped them become the top selling smartphone maker in China. Additionally, Apple is also investing in their geographic footprint and plan to expand their current presence of 10 Apple stores in the region to 40 by the year 2016.

The market is obviously pleased with Apple’s performance. Their stock is trading at $117.44 with a market capitalization of $688.8 billion. It touched a record high of $119.75 soon after the result announcement.

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